Both nations realized that Venezuela’s oil industry is almost in total neglect and to get it back on its feet would require millions in additional investments
Russia and China, allied countries of the dictatorship in Venezuela, declined taking over the Venezuelan refineries of Paraguaná, as the Maduro regime had offered.
Both countries realized that Venezuela’s oil industry is almost in total neglect and that to get it back on its feet would require millions in additional investments.
Rosneft (Russia) was set to run the Amuay refinery with a capacity of 650,000 barrels per day, and Petrochina would handle Cardón, whose capacity is 310,000 barrels per day.
“That agreement was unsuccessful because these refineries are in appalling conditions, and they realized that the investments they had to make are extremely high,”
– Iván Freite, director of Federación Única de Trabajadores Petroleros de Venezuela.
Given this situation, Venezuela, with some the largest oil reserves in the world, plans to close three of its largest refineries due to a shortage of oil and lack of personnel. A situation that leaves the major source of income of the South American country in disarray.
The biggest threat to the oil industry and PDVSA is the socialist regime that has practically destroyed all existing infrastructure.
According to Platt’s Oilgram, the only entity that provides information on futures and options in the world oil market, the Maduro regime plans to close the refineries located in Cardón, El Palito, and Puerto La Cruz. They claim to not have enough crude oil to process fuels.
In the 90s, Cardón was part of the largest oil complex in the world and the most technologically advanced refinery. Today is about to shut down under the management of 21st-century socialism.
Jose Toro Hardy, an economist and member of the PDVSA board until 1999, told the PanAm Post that the country’s impoverishment is due to the mismanagement of the Venezuelan state oil company and blamed the regimes of Hugo Chávez and Nicolás Maduro for the situation.
“The problems started in 2002 and 2003 when President Chávez fired 20,000 PDVSA workers. That personnel had an average of 15 years working for the industry, so they threw to the trash 300,000 years of experience and knowledge,” Toro said.
Toro explained that the Venezuelan oil company went from being the second or third largest of the world to become the biggest “administrative disaster.”
“None of the necessary investment and maintenance plans have been done. The resources of the company have been diverted to fulfill the Government’s political priorities. The oil company mission that includes exploration, production, refining, and commercialization was lost. Now it has become a political party dedicated to importing food, build buildings for the Housing Mission, solve health problems of the Health Mission, and other things that have nothing to do with its function,” said the former PDVSA director.
For Toro Hardy it seems that “in Venezuela, there is not enough oil.” “According to OPEC we are producing 1,600,000 barrels per day and the priority is the payment of debts with oil shipments to China – amounting US$20,000 million-, to Russia and to Cuba,” he said.
PDVSA is ruining the country
Venezuela does not receive dollars from its oil shipments to countries such as Russia, China or Cuba. In addition, the sale of gasoline in the country is subsidized and its produced without profit.
PDVSA has huge debts and has fallen into default. At this time specialists are unaware if the country’s largest company could be salvageable. As stated by Hardy
“State companies do not go bankrupt, Venezuela is the one in ruins. PDVSA, which became the company that contributed most to the growth of the Venezuelan economy, today is responsible for the impoverishment of the country.”
“PDVSA’s ongoing deficit cash flow is gigantic. In order for the company to keep its doors open, the Central Bank issues huge amounts of money without support. That money that PDVSA receives is incorporated into the money supply, it grows phenomenally and that translates into demand for goods. But since there are no goods in the country, and we are in a very serious shortage, the consequence is higher prices, that has led us to have the highest inflation in the world and to be already plunged into an unprecedented process of hyperinflation in the history of the Western hemisphere,” Toro explained.
“The primary cause of impoverishment is inflation and the cause of the inflation in Venezuela is PDVSA,” he said.
GDP in freefall
For Toro Hardy the main consequence of the closure of the refineries is the fall in GDP. “According to IMF preliminary estimations, the GDP would fall by 15% in 2018, and now with this closure, the fall will be much worse. In fact, if that fall occurs, it would imply that in the next few years the size of the Venezuelan economy will be reduced by 55%, that does not happen even in countries at war,” he explained.